Published in Menzies House blog on 15 August 2011 under the title “Farmers, miners & private property rights“
The debate about mining on agricultural land has long frustrated me. While one side argues to help the “farmers” and the other side wants to help the “miners” it seems everybody has abandoned the most obvious solution — clear allocation of private property rights. As Nobel prize winner Ronald Coase explained, conflicts over resources can be solved by allocating private property rights and then allowing trade so that the resources end up going where they are most valuable.
My suggested approach to the mining/farming debate has been to strengthen the private property rights of farmers so that they have the “right to say no” regarding access to their land. Miners can then deal directly with farm-owners to come to mutually beneficial deals regarding access. Unfortunately, this approach has been ignored by both sides of politics. Until now.
Yesterday Tony Abbott supported the idea that farmers should be able to control access to their land. The Courier Mail reports him as saying: “If you don’t want something to happen on your land, you ought to have the right to say no.” Good stuff.
Abbott goes on to say that he wants a review of foreign investment rules, which I think is unnecessary. But the main point is that the “market solution” is now on the table.
The government immediately came out against the idea, claiming that it would put mining investment at risk and would lead to less revenue for State governments (mining royalties will bring in $2.8 billion for the Queensland government this year). But this misunderstands how a market works. Giving farmers the right to say “no” doesn’t mean that they will say no. Indeed, the likely outcome is that the vast majority of farmers will say “yes”… but only at the right price.
The main consequence of the market solution won’t be less mining; it will be higher payments from miners to land-holders to ensure that everybody is happy with the outcome. Farmers win because they will get the compensation that they are after, and miners win because they will still be able to go ahead with the vast majority of their projects. This means investment will continue and the government will keep their revenue.
In a few cases, land-owners may say “no” at any realistic price. But that’s not a big problem. If a farmer values their land more than a mining company, then it is appropriate (and utility-maximising) to have no mine. And if the government really wanted to ensure a mine went ahead against the wishes of the land-holder, then they always have the option to buy the land.
One criticism of the “market solution” is that it is basically giving something to farmers (stronger property rights) for free. That is true, but it’s not a problem. The virtue of private property rights is not that the government gets to earn money by selling them; the virtue comes because a system of private property works best to allocate resources where they are most valuable. Farmers would support this reform because it is good for them personally, but we should all support this reform because it is good policy to strengthen private property rights.
John Humphreys 